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Friday, January 15, 2016

Myths, Realities and Solutions for K-12 Christian School Finance

Myth #1: Christian school parents are extremely
sensitive to even the slightest changes in tuition pricing.

Reality #1: Christian school parents are first and
foremost concerned about QUALITY. They
are shopping VALUE. It’s all a lot of
money – not to mention time, hassle, transportation, etc.

Solution #1:
Any “cutting expense” solution to balancing the budget risks losing the
core strength and main attraction of a Christian school, which is
providing a HIGH QUALITY EDUCATION. Focus
on revenue solutions instead. That
is our focus at GraceWorks, starting with real help in marketing and fund
development.

Solution #1a: For many schools, significant increases
in tuition or significant decreases in automatic discounts ARE POSSIBLE with limited
consequences. However, to really know if this is true for your school, you need to
take GraceWorks’ Parent Satisfaction and Referral Survey.

Why? As a completely normed device, comparing
your results to 579 schools other Christian Schools, we know, we know, WE KNOW if your parents are truly satisfied or not. And that makes ALL the difference as to
whether you can do something dramatic in raising prices.

In addition, the PSRS tells you satisfaction by income
level of your parents. In question
would be families who formerly “got by” with all your automatic discounts, but
now must apply for financial aid. (This
would be the $50,000 to $74,999 level, and depending on the number of children,
perhaps even $75,000 to $99,999.) Our data is normed at the subgroup level, so
we can tell you the relative satisfaction
at each income level.

With a “home-grown”
survey, you are never really sure whether your scores are good scores or not,
especially when the average Christian school is so highly satisfying. For
Christian schools that are not so satisfying, raising tuition is a VERY risky
proposition.

Note: Both “Should you?” and “How do you go about it?” are
in question here. It is only because of
the survey results of some 88,000 respondents that GraceWorks can speak with authority
about how unnecessary many Christian School’s financial problems really
are – ditto many school closures. (The “How to” part is explained in detail in
our Revenue Revolution Bootcamp, session #5.)

Solution #1b:
In general, it is a BAD idea to
present tuition increases as a percent.
Just state the lump sum. There
are many schools that are horribly
under-priced, and need tuition increases of the order of 50-100%. (E.g. member rates at some denominational schools.)

Don’t present it the percentage way – simply state
the amount of the increase in dollar terms – best is extra dollars per
month.

Myth #2: The world has changed so much that K-12 Christian
schools can’t survive.

Reality #2: The
problem is Christian Schools’ old wineskins, which are simply not working in
today’s new world. To be blunt: Old wineskin schools will NOT survive in
today’s changed world.

This is particularly true in Christian school finance, where
emotions, collective “common sense,” and “hardening of the categories” keep in
place a totally counter-productive organizational culture. To paraphrase Mark Twain, “What we know that ain’t so” is the real
problem.

By the numbers Christian schools are among the most
satisfying “businesses” in the world, using international metrics. More satisfying than Disney and John Deere, on
average. Many are more satisfying than
Amazon or even Harley Davidson. Our parents will sacrifice to put their
kids in our schools – if we maintain quality.

However, a significant problem is that the next generational cohort of parents, Milliennials, have lower income and wealth than any of the
last three. In addition, household income
is highly variable, both nationally and individually. Overall, the middle class is declining. Many immigrants, now in many parts of the country, will also be motivated to have their children in a Christian school. Many of
these will likely need help to attend our schools.

Solution #2a:
Ultimately one-size, low-cost leader pricing will not “fit all.” Because of the nature of our changing job
market, and variable incomes, some parents, some years, will be able to
contribute to financial aid fundraising.
In other years, these same parents may need financial aid for their
child to remain at the school.

To survive, Christian schools will need to move to a higher
tuition, and often, a much higher financial aid model. At a minimum, we need a full-cost model, but in reality
Christian schools should be value-priced,
which - recognizing past generosities that add value today – will actually be
higher than the current cash cost to educate a child. (And yes, the
amount we should be paying our teachers needs to be part of the equation
here.)

Solution #2b:
This financial aid program will, of necessity, be highly
sophisticated. An objective, third party
such as FACTs or FAST should assess financial need. To avoid abuses, and to engage the truly
needy to apply rather than walk away, a Biblical integration of social norms
theory in behavioral economics is needed.
(See session #3 of our Revenue Revolution Bootcamp.)

Solution #2c:
Behavioral economics has also taught us that price influences demand in
often unexpected ways, particularly in big ticket purchases. Many schools have noticed that demand seemed
to go up with significantly increased tuition (e.g. The Rock, Gainesville, FL,
East Linn Christian, WA). Through a
series of carefully controlled experiments, a giant in the field of behavioral
economics, Dr. Daniel Ariely, has determined that:

Traditional economics assumes that prices of products in the
market are determined by a balance between [supply] and [demand] … The price at
which these forces meet determines the price in the marketplace … as our
experiments demonstrate, what consumers are willing to pay can easily be
manipulated, and this means that consumers don’t in fact have a good handle on
their preferences and the prices they are willing to pay for different goods
and experiences (Ariely, Predictably Irrational, p. 47-48)

Solution #2d:
Ultimately, for Christian schools to survive, we will be filling up our
classrooms through a mix of full and partially-paying students. With more students, our cash cost to educate
a child will decline, while at the same time, total revenues will increase, as
seats formerly empty now have partially paying students. (With the exception of staff, we recommend
that most everyone else pays at least 50% of tuition, regardless of the result
of the needs assessment.)

Solution #2e:
Ultimately both church support and fund development efforts will need to
move to an inspirational basis – and “filling the gap” is NOT that. “Your gift(s) help children be here, who
otherwise wouldn’t” is a powerful case for support when coupled with the
very real benefits of Christian schools (higher college graduation, character,
staying in church, etc.) Note that only when tuition is raised can
church support of budget gaps be redesignated to needs based financial aid. There is no way to do it otherwise.
Needs based financial aid for worthy students is a cause concept that will be
more supportable to younger church-going givers.

Myth #3: All
we need is more students, and we will be fine.

Reality #3:
For some schools, this is true.
For these schools, a practical problem is – where would a significant
influx of new students GO – into what
grades? Or more realistically, based
on our typical entry points, in what
grades would we expect to pick up a much larger than usual group of new
students?

The problem is, it is often difficult to fill a gap in
students at certain grade levels, such as 2nd or 3rd or 4th
or 11th grades. Even with
very aggressive promotion, we don’t get students “in just the right
places.” Thus, enrolling a large number
of new students typically means we have to add a teacher / aide or two at our
usual entry points (e.g. PK, K, 6th, 9th), which then negates
our cash flow gains from the new students’ tuition.

The lower the NET tuition – full tuition minus average
discounts and average financial aid – the less likely it is that you will be
able to “market your way out” of a deficit financial situation. You have to add staff all too soon.

Solution #3a:
You have to know your numbers.
GraceWorks’ marketing coaching clients use an elaborate, multi-tabbed
spreadsheet which shows you the results of hypotheticals in real time. This is
both in terms of the overall budget, and per student costs and revenues.

In many cases the only way out will be to reduce discounts and/or raise
tuition. A starting place for the
change process is a leadership discussion on this question: On what
grounds do we say that certain people will pay less than the cost to educate a
child?

Myth #4: All
financial aid needs to be FUNDED.

Reality #4: This idea ignores the positive financial
impact of families who are paying 50% or more of their child’s tuition, even if
the other half is not funded. Typically
this myth results in too little financial aid being given away, resulting in
prospective families not enrolling, or current families not re-enrolling. This results in empty seats and lost tuition
payments. In the case of current
families who exit, often this leaves you with gaps in the hardest grades to
fill.(And never mind why we didn’t have to fund automatic discounts all
these many years ….)

Solution #4a:
Do everything possible to raise dollars for financial aid, a year in
advance if possible. (It’s a great case for support, as mentioned above.) But do NOT limit yourself to awarding just
the amount of financial aid you raised.
Instead, the amount of financial aid awarded would be based on the
individual family need – where you are giving JUST ENOUGH for that family to
say “Yes.” In addition, use the “as you
go” week-by-week assessment in #5 below to make sure that for the school as a
whole, you are NOT giving away too much financial aid to make your budget.

Solution #4b:
To assess the overall effectiveness of your financial aid program,
change your metrics to:
(1) Do we have more or
less net tuition revenue compared to last year?
(2) Do we have more students
than last year?

For our marketing coaching clients, we have developed very
sophisticated methodology to determine if too much financial aid is being given
away – both to individuals or for the schools as a whole.

Myth #5: If we
don’t fund financial aid, there is no way to know if we will make our budget at
the start of the school year.

Reality #5: By
converting your budget need into the number of “Full Pay Equivalents” you need,
you can assess, week by week, where you are both in achieving the number of
FPE’s you ultimately need, and you can thereby control the percentage of
financial aid (relative to the budget) being given away.

To be clear, no Christian school could survive if every
student was paying 50% of tuition. There
are times when you may need to say “No” to a family who can pay the 50% if accepting that child will preclude a full paying family.

Solution #5a:
Use the week by week FPE & ANT(s) analysis tool we have developed
for our Marketing Coaching clients. We
recommend that an FPE is the actual cost to educate a child, regardless of your
actual tuition.

(c) 2016 Dan Krause GraceWorks Ministries All Rights Reserved\

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